How you can make the most of your ISAs before tax year-end

22 March 2024

4 minutes

At a glance

• Even though interest rates may have peaked, above average inflation rates mean Cash ISAs are still losing value in real terms.
• Investing in a mix of Cash and Stocks and Shares ISAs may give your money the best chance for greater growth.
• We can help you rebalance your cash savings against your stocks and shares investments, improving your family’s financial wellbeing.

Time to take stock of your ISAs

‘Max out your ISAs.’ It’s the tax year-end mantra that’s all too familiar. But the mantra needs a little refining. While it’s key to put as much into your ISAs as you feel comfortable with, ahead of 5 April, it’s just as important to make sure that what you do hold is still giving you real value for money. Perhaps a rebalance of your ISAs would pay off, especially since we’ve all had a financially challenging couple of years.

There’s still time to review your Cash ISAs performance. With many of us still needing to keep a watchful eye on family finances, you want to be sure that any ISAs you do have are getting good rates – and earning their keep.

At the time of writing, inflation appears to be coming under control, while interest rates remain higher than we’ve experienced for many years. That’s predicted to last for another six months. However, once interest rates begin to fall, your savings or investments will be slowly losing value over time if inflation outpaces average interest rates.

Cash versus Stocks and Shares ISAs – what's the latest?

Cash ISAs are still hugely popular, for compelling reasons. They offer easy, simple access to cash. In the 2021/22 tax year (the last year for which figures are available), Cash ISAs accounted for 61% of all accounts; that’s a drop of 920,000 compared to 2020/21. Stocks and Shares ISAs increased by 345,000 in the same timeframe.¹ That indicates that although we're feeling more confidence financially, many are still wary of market performance.

Working out which type of ISA is best for you

Cash ISAs are conveniently flexible, as well as being tax efficient. And they’re a source of ready cash if you hit an unexpected expense.

When you invest in Stocks and Shares ISAs, on the other hand, your money has the potential to grow more than in a Cash ISA. If you’re holding a lot of money in Cash ISAs or savings accounts, you may miss out on growth that could go a long way to help you achieve your financial wellbeing.

But, unlike a Cash ISA, your capital is also at risk, and it’s your personal decision how much risk you feel comfortable with. You can hold a mix of company shares, bonds, and other assets.

Most people opt to invest in funds – mixed portfolios of investments – to spread their risk.

If markets fall, the value of your savings will dip. However, the longer you stay invested, the more you average out the ups and downs of the market. That’s a good reason for investing over the long term.

Your money has the potential to earn more than in a Cash ISA. And, of course, you still won’t pay tax on any gains or income.

Getting the most out of your ISAs

Working out what’s best for you and your family is something that we help our clients with every day. Most people find that a combination of Stocks and Shares and Cash ISAs means they have stability in the short- and medium-term, coupled with potential to create wealth in the longer term.

With that in mind, here are the key questions we suggest you consider as we near tax year-end:

How long have you had your Cash ISAs?

If you’ve had any of your Cash ISAs for more than five years, then ready cash may have unwittingly crept into your long-term financial planning. If you’re keeping this money handy to cover unforeseen bills or a rocky patch, that’s a good plan.

But over the longer term, you’re less likely to get the same level of returns and growth that a Stocks and Shares ISA could deliver. Maybe you don't need to hold as much in a Cash ISA?

So do I need my Cash ISAs?

It’s also worth considering how important Cash ISAs are in your overall financial plans.

You can put up to £20,000 into a Cash ISA each year, which is very tax-efficient and versatile.

You have the option to split your £20,000 ISA allowance any way you like across a Cash ISA, Stocks and Shares ISA, and Lifetime ISA (maximum of £4,000), for example, as long as you stay within the limit.

Keep an eye on the interest rates, though. If interest rates rise, the amount you can save in standard accounts before you start to pay tax on it will reduce.

Are you getting the mix right?

To really make the most of the tax perks of ISAs, it’s usually best to invest in assets which have the potential to do better over time – and that means stocks and shares.

A Cash ISA for the short- to mid-term, and a Stocks and Shares ISA for the long-term, may be the right mix for your family’s future goals, or your own retirement.

We do understand however that investing more in a volatile stock market can feel daunting. Even for experienced investors. So, ahead of tax year-end, it’s worth having a chat with us about your own ISAs to make sure they fit with your ‘bigger picture’ financial plans.

We can help you work out how much you want to hold in cash, and how much you feel confident in investing in stocks and shares to give you the best chance of financial wellbeing, and a future that’s everything you imagine.

Thinking of changing your ISA mix? What you should know

If you have multiple ISA accounts, you may find it easier to keep track of them if you consolidate them into one plan.

If you transfer as cash, you’ll be out of the market until the transfer is complete. You won't lose out if the market falls, but your money won't be subject to any income or growth if the market rises in this period. If you transfer a fixed rate Cash ISA before the end of the term, you may have to pay a fee.

If you're transferring funds from a Stocks and Shares ISA, you'll remain invested until the transfer. You'll be unable to switch or sell these funds while the market falls or rises during this time.

It’s possible, where appropriate, to transfer money out of existing Cash ISAs into a Stocks and Shares ISA without it reducing your allowance for the current year.

You should also be aware that your current provider may charge exit fees.

Catch up with an adviser before tax year-end

Having a regular catch-up with your financial adviser is always a good plan, but coming up to tax year-end it’s even more important. Especially if your long-term plans or family circumstances have changed in the last twelve months.

There’s still time to make some tax-smart tweaks to your ISAs and investments – your family will feel the benefit.

The value of an ISA with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Neither Lifetime ISAs or Cash ISAs are available through St. James's Place.

Sources

¹Gov.uk published June 2023. Accessed November 2023

‍